Estimates abound pertaining to the size of the retail market and the share of organized retail. We refer to the data provided by the India Retail Report, 2009 (IMAGES F&R Research). The report indicates that the retail market is around US$243bn, with organized retail accounting for about 8% of this and forecast to increase to 15% by 2010.
For organized retail to reach its potential (as indicated by industry consultants and retail players themselves), significant capital expenditure will need to be incurred. We estimate that the average capex / square foot is in the range of Rs2000-Rs2500/sq foot (including inventory holding costs). We think this number is conservative (especially if one analyzes the details in Pantaloon’s FY08 annual report).
Retail industry participants concur that the average revenue / square foot is around Rs 7000 – 8000 /square foot. This implies that the asset turn in retail (department store format) is around 3-4x.
We do not dispute that the opportunity exists, however, the industry will face an uphill task this year looking from the business case.